EUROPE, MIDDLE EAST, AND AFRICA (EMEA) - PROXY VOTING GUIDELINES UPDATES FOR 2021 - Institutional ...
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EUROPE, MIDDLE EAST,
AND AFRICA (EMEA)
PROXY VOTING GUIDELINES
UPDATES FOR 2021 TITLE
Benchmark Policy Changes for U.K. & Ireland, Continental
Europe, Russia & Kazakhstan, EMEA Regional, Middle East,
and Africa
Effective for Meetings on or after February 1, 2021
Published November 12, 2020
ISSGOVERNANCE.COM
© 2020 | Institutional Shareholder Services and/or its affiliatesEMEA
POLICY UPDATES FOR 2021
TABLE OF CONTENTS
All Markets................................................................................................................................................................................................................................... 5
Board of Directors- Director Elections ............................................................................................................................................................................................................ 5
Governance Failures: Material Environmental & Social Risk Oversight Failures ....................................................................................................................................... 5
United Kingdom and Ireland ....................................................................................................................................................................................................... 6
Board of Directors - Director Elections ........................................................................................................................................................................................................... 6
Overboarding ............................................................................................................................................................................................................................................. 6
Board Gender Diversity .............................................................................................................................................................................................................................. 7
Remuneration ................................................................................................................................................................................................................................................. 9
Remuneration Policy .................................................................................................................................................................................................................................. 9
Investment Companies ................................................................................................................................................................................................................................. 12
Authorise Issue of Equity without Pre-emptive Rights ............................................................................................................................................................................ 12
Continental Europe.................................................................................................................................................................................................................... 14
Operational Items ......................................................................................................................................................................................................................................... 14
Appointment of Auditors and Auditor Fees ............................................................................................................................................................................................. 14
Board of Directors- Non-Contested Director Elections ................................................................................................................................................................................ 15
Director Terms ......................................................................................................................................................................................................................................... 15
Election of a Former CEO as Chairman of the Board ............................................................................................................................................................................... 16
Overboarded Directors ............................................................................................................................................................................................................................ 17
Composition of Committees .................................................................................................................................................................................................................... 18
Election of Censors (France) .................................................................................................................................................................................................................... 19
Board Gender Diversity ............................................................................................................................................................................................................................ 20
Capital Structure ........................................................................................................................................................................................................................................... 22
Florange Act- Double Voting Rights (France) ........................................................................................................................................................................................... 22
Share Repurchase Plans ........................................................................................................................................................................................................................... 23
Compensation .............................................................................................................................................................................................................................................. 25
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Executive Compensation-Related Proposals ........................................................................................................................................................................................... 25
Other Items .................................................................................................................................................................................................................................................. 27
Antitakeover Mechanisms ....................................................................................................................................................................................................................... 27
Auditor Report Including Related Party Transactions (France)................................................................................................................................................................ 28
Russia and Kazakhstan............................................................................................................................................................................................................... 30
Operational Items ......................................................................................................................................................................................................................................... 30
Appointment of Auditors and Auditor Fees ............................................................................................................................................................................................. 30
Board of Directors ........................................................................................................................................................................................................................................ 31
Director Elections- ISS Classification of Directors .................................................................................................................................................................................... 31
EMEA Regional, Middle East & North Africa, and Sub-Saharan Africa...................................................................................................................................... 35
Operational Items ......................................................................................................................................................................................................................................... 35
Amendments to Articles of Association (Bylaws) .................................................................................................................................................................................... 35
Donations ................................................................................................................................................................................................................................................. 36
EMEA Regional .......................................................................................................................................................................................................................... 38
Board of Directors ........................................................................................................................................................................................................................................ 38
Director Elections - Audit Committee Independence; Cumulative Voting .............................................................................................................................................. 38
Middle East & North Africa........................................................................................................................................................................................................ 40
Operational Items ......................................................................................................................................................................................................................................... 40
Financial Results/Director and Auditor Reports ...................................................................................................................................................................................... 40
Middle East & North Africa, Sub-Saharan Africa ....................................................................................................................................................................... 41
Compensation .............................................................................................................................................................................................................................................. 41
Director Compensation- Board Fees ........................................................................................................................................................................................................ 41
Sub-Saharan Africa .................................................................................................................................................................................................................... 43
Operational Items ......................................................................................................................................................................................................................................... 43
Appointment of Auditors and Auditor Fees ............................................................................................................................................................................................. 43
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Compensation .............................................................................................................................................................................................................................................. 44
Remuneration Policy/Report ................................................................................................................................................................................................................... 44
Other Items .................................................................................................................................................................................................................................................. 45
Related-Party Transactions ...................................................................................................................................................................................................................... 45
South Africa (changes were effective Oct. 1, 2020) .................................................................................................................................................................. 47
Operational Items ......................................................................................................................................................................................................................................... 47
Auditors' Reappointment and Remuneration.......................................................................................................................................................................................... 47
Board of Directors ........................................................................................................................................................................................................................................ 48
Voting on Director Nominees in Uncontested Elections ......................................................................................................................................................................... 48
ISS Classification of Non-Independent Non-Executive Directors - Tenure .......................................................................................................................................... 48
Audit Committee Elections ...................................................................................................................................................................................................................... 51
Remuneration ............................................................................................................................................................................................................................................... 52
Fees for Non-Executive Directors ............................................................................................................................................................................................................ 52
New Equity Incentive Scheme or Amendment to Existing Scheme ......................................................................................................................................................... 53
Other Items .................................................................................................................................................................................................................................................. 54
Shareholder Proposals (ESG) ................................................................................................................................................................................................................... 54
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All Markets
Board of Directors- Director Elections
Governance Failures: Material Environmental & Social Risk Oversight Failures
Current ISS Policy, incorporating changes: New ISS Policy:
General Recommendation: Under extraordinary circumstances, ISS will consider General Recommendation: Under extraordinary circumstances, ISS will consider
recommending a vote against individual directors for: recommending a vote against individual directors for:
▪ Material failures of governance, stewardship, or risk oversight, including ▪ Material failures of governance, stewardship, or risk oversight, including
demonstrably poor risk oversight of environmental and social issues, demonstrably poor risk oversight of environmental and social issues,
including climate change; or including climate change; or
▪ Egregious actions related to the director's service on other boards that raise ▪ Egregious actions related to the director's service on other boards that raise
substantial doubt about that individual's ability to effectively oversee substantial doubt about that individual's ability to effectively oversee
management and to serve the best interests of shareholders at any management and to serve the best interests of shareholders at any
company. company.
Rationale for Change:
While the specific language regarding the “Governance Failures” policy varies from market to market, every ISS policy guideline document in this region is being
updated to include explicit references to poor risk oversight of environmental and social issues as examples of material failure that may result in adverse vote
recommendations.
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United Kingdom and Ireland
Board of Directors - Director Elections
Overboarding
Current ISS Policy, incorporating changes: New ISS Policy:
General Recommendation: Where directors have multiple board appointments, General Recommendation: Where directors have multiple board appointments,
ISS may recommend a vote against directors who appear to hold an excessive ISS may recommend a vote against directors who appear to hold an excessive
number of board roles at publicly-listed companies, defined as follows: number of board roles at publicly-listed companies, defined as follows:
▪ Any person who holds more than five mandates at listed companies will be ▪ Any person who holds more than five mandates at listed companies will be
classified as overboarded. For the purposes of calculating this limit, a non- classified as overboarded. For the purposes of calculating this limit, a non-
executive directorship counts as one mandate, a non-executive chair counts executive directorship counts as one mandate, a non-executive chair counts
as two mandates, and a position as executive director (or a comparable role) as two mandates, and a position as executive director (or a comparable role)
is counted as three mandates. is counted as three mandates.
▪ Also, any person who holds the position of executive director (or a ▪ Also, any person who holds the position of executive director (or a
comparable role) at one company and a non-executive chair at a different comparable role) at one company and a non-executive chair at a different
company will be classified as overboarded. company will be classified as overboarded.
When applying this policy, ISS will consider the nature and scope of the various When applying this policy, ISS will consider the nature and scope of the various
appointments and the companies concerned, and if any exceptional appointments and the companies concerned, and if any exceptional
circumstances exist. A stricter view may apply for directors who serve on the circumstances exist. A stricter view may apply for directors who serve on the
boards of complex companies, those in highly regulated sectors, or directors who boards of complex companies, those in highly regulated sectors, or directors who
chair a number of key committees. Likewise, a more lenient view may apply for chair a number of key committees. Likewise, a more lenient view may apply for
directors who serve on the boards of less complex companies (for example, directors who serve on the boards of less complex companies (for example,
externally managed investment companies). externally managed investment companies).
Rationale for Change:
ISS’ current policy for the UK and Ireland states that persons holding more than a certain number of mandates may be considered to be overboarded. The explanatory
text emphasises that, “A stricter view may apply for directors who serve on the boards of complex companies, those in highly regulated sectors or directors who chair a
number of key committees”.
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This suggests that ISS only deviates from its policy where a stricter interpretation is required. In practice, ISS has taken a more pragmatic view of overboarding in the UK
market, recognising that mandates held at smaller, less regulated companies (such as those listed on the LSE's Alternative Investment Market) or at investment
companies may require a lesser time commitment than those at an operating company with a Premium Listing on the Main Market.
Board Gender Diversity
Current ISS Policy, incorporating changes: New ISS Policy:
Gender Diversity Gender Diversity
The 2018 UK Corporate Governance Code notes that both board appointments The 2018 UK Corporate Governance Code notes that both appointments and
and succession plans should be based on merit and objective criteria and, within succession plans should be based on merit and objective criteria and, within this
this context, should promote diversity of gender, social and ethnic backgrounds, context, should promote diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths. cognitive and personal strengths.
ISS will generally recommend against the chair of the nomination committee (or ISS will generally recommend against the chair of the nomination committee (or
other directors on a case-by-case basis) when there are no female directors on other directors on a case-by-case basis) in the following cases:
the board of widely-held companies. Mitigating factors include in the following
cases: ▪ The company is a constituent of the FTSE 350 (excluding investment trusts)
and the board does not comprise at least 33 percent representation of
▪ The company is a constituent of the FTSE 350 (excluding investment trusts) women, in line with the recommendation of the Hampton-Alexander
and the board does not comprise at least 33 percent representation of Review.
women, in line with the recommendation of the Hampton-Alexander ▪ The company (excluding investment trusts) is a constituent of any of the
Review. following, and there is not at least one woman on the board:
▪ The company (excluding investment trusts) is a constituent of any of the ▪ FTSE SmallCap;
following, and there is not at least one woman on the board: ▪ ISEQ 20;
▪ FTSE SmallCap; ▪ Listed on the AIM with a market capitalisation of over GBP 500 million.
▪ ISEQ 20;
▪ Listed on the AIM with a market capitalisation of over GBP 500 million.
Mitigating factors include:
Mitigating factors include:
▪ Compliance with the relevant board diversity standard at the preceding
▪ The presence of a female director on the board at the preceding annual AGM and a firm commitment, publicly available, to comply with the relevant
meetingCompliance with the relevant board diversity standard at the standard within a year. In 2021 only, for FTSE 350 constituents, a public
preceding AGM and a firm commitment, publicly available, to appoint at commitment to bring the composition of the board in line with the
least one female director to the board to comply with the relevant standard recommendations of the Hampton-Alexander Review by the following AGM
within a year. In 2021 only, for FTSE 350 constituents, a public commitment
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to bring the composition of the board in line with the recommendations of will not result in a negative recommendation, regardless of the previous
the Hampton-Alexander Review by the following AGM will not result in a composition of the board.
negative recommendation, regardless of the previous composition of the ▪ Other relevant factors as applicable.
board.; or
▪ Other relevant factors as applicable.
Rationale for Change:
The changes are consistent with the increasing focus on board diversity at the global level and bring ISS U.K. and Ireland policy in line with the recommendations of the
Hampton-Alexander Review, the relevant standard for constituents of the FTSE 350 index. The strengthening of the expected standards runs in parallel with similar
changes to ISS policy across Continental Europe.
First published in 2016, the Hampton-Alexander Review called for 33 percent women representation on FTSE 350 boards by 2020. There has been significant progress
towards the target but there are still many companies falling short, despite pressure from shareholders and investor bodies such as the Investment Association. Many
institutional investors support the Hampton Alexander Review and have begun voting against chairs in recent years due to lack of progress. The policy change
encourages FTSE 350 companies to take the final steps toward meeting this target and will recognise firm public commitments that the company makes in this regard.
For smaller companies and those in other indices, which include those in the FTSE SmallCap, ISEQ 20 and on AIM (AIM companies with a market capitalisation of over
GBP 500 million) and in each case, excluding investment companies, a minimum requirement of one female director on the board will be uniformly introduced. This
acknowledges developments in market practice and expands minimum board diversity expectations to a significant proportion of the companies covered by ISS within
the UK and Ireland. This approach was broadly supported by ISS’ institutional investor clients attending the London Benchmark Policy Roundtables in September 2020,
most of whom already apply bespoke diversity voting standards to companies listed in the UK and Ireland.
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Remuneration
Remuneration Policy
Current ISS Policy, incorporating changes: New ISS Policy:
General Recommendation: Vote the resolution to approve the remuneration General Recommendation: Vote the resolution to approve the remuneration
policy on a case-by-case approach, paying particular attention as to whether: policy on a case-by-case approach, paying particular attention as to whether:
▪ The overall remuneration policy or specific scheme structures are not over- ▪ The overall remuneration policy or specific scheme structures are not over-
complex, have an appropriate long-term focus and have been sufficiently complex, have an appropriate long-term focus and have been sufficiently
justified in light of the company's specific circumstances and strategic justified in light of the company's specific circumstances and strategic
objectives; objectives;
▪ The company's approach to fixed remuneration is appropriate, with a ▪ The company's approach to fixed remuneration is appropriate, with a
particular focus on the extent to which pension contributions are aligned particular focus on the extent to which pension contributions are aligned
with those available to the wider workforce, as recommended by the UK with those available to the wider workforce, as recommended by the UK
Code; Code;
▪ The award levels for the different components of variable pay are capped, ▪ The award levels for the different components of variable pay are capped,
and the quantum is reasonable when compared to peers, and any increase and the quantum is reasonable when compared to peers, and any increase
in the level of certainty of reward is accompanied by a material reduction in in the level of certainty of reward is accompanied by a material reduction in
the size of awards; the size of awards;
▪ Increases to the maximum award levels for the LTIP and bonus have been ▪ Increases to the maximum award levels for the LTIP and bonus have been
adequately explained; adequately explained;
▪ Performance conditions for all elements of variable pay are clearly aligned ▪ Performance conditions for all elements of variable pay are clearly aligned
with the company's strategic objectives, with vesting levels and holding with the company's strategic objectives, with vesting levels and holding
periods that are in line with UK good practice; periods that are in line with UK good practice;
▪ Change of control, good leaver and malus/clawback provisions are in line ▪ Change of control, good leaver and malus/clawback provisions are in line
with standard practice in the UK market; with standard practice in the UK market;
▪ The shareholding requirement for executive directors is a minimum of 200 ▪ The shareholding requirement for executive directors is a minimum of 200
percent of base salary, with an appropriate post-employment shareholding percent of base salary, with an appropriate post-employment shareholding
requirement in place; requirement in place;
▪ Service contracts contain notice periods of no more than twelve months' ▪ Service contracts contain notice periods of no more than twelve months'
duration and potential termination payments are linked to fixed pay with no duration and potential termination payments are linked to fixed pay with no
contractual entitlements to unearned bonus on termination; contractual entitlements to unearned bonus on termination;
▪ Non-executive directors do not receive any performance-related ▪ Non-executive directors do not receive any performance-related
remuneration beyond their standard fees; remuneration beyond their standard fees;
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▪ The treatment of new joiners is appropriate, with particular attention paid ▪ The treatment of new joiners is appropriate, with particular attention paid
to the use of buy-out awards, and that the potential for any additional to the use of buy-out awards, and that the potential for any additional
awards is capped; awards is capped;
▪ The remuneration committee seeks to reserve a degree of discretion in line ▪ The remuneration committee seeks to reserve a degree of discretion in line
with standard UK practice; and with standard UK practice; and
▪ There are no issues in the policy which would be of concern to shareholders. ▪ There are no issues in the policy which would be of concern to shareholders.
…….. ……..
Policy component Good market practice Policy component Good market practice
Benefits and pensions Companies must describe the benefits provided to Benefits and pensions Companies must describe the benefits provided to
directors, which are expected to be in line with directors, which are expected to be in line with
standard UK practice and which should not be standard UK practice and which should not be
excessive. excessive.
The Code states that the pension contribution rates The Code states that the pension contribution rates
for executive directors, or payments in lieu, should be for executive directors, or payments in lieu, should be
aligned with those available to the workforce. The aligned with those available to the workforce. The
Investment Association Principles state that for Investment Association Principles state that for
incumbent directors, "a credible plan" for achieving incumbent directors, "a credible plan" for achieving
alignment with the majority of the workforce by no alignment with the majority of the workforce by no
later than the end of 2022 should be disclosed, and later than the end of 2022 should be disclosed, and
without any compensation being awarded for this without any compensation being awarded for this
change. change.
ISS' position is that the pension arrangements for new ISS' position is that the pension arrangements for new
joiners should be aligned with those of the wider joiners should be aligned with those of the wider
workforce, and companies should actively disclose workforce, and companies should actively disclose
whether or not this is the case. For incumbent whether or not this is the case. For incumbent
directors, companies should seek to align the directors, companies should seek to align the
contribution rates with the workforce over time, contribution rates with the workforce over time,
recognising that many investors in the UK will expect recognising that many investors in the UK will expect
this to be accomplished in the near-term. this to be accomplished in the near-term.
Companies must give a clear explanation of pension- Companies must give a clear explanation of pension-
related benefits, including the approach taken to related benefits, including the approach taken to
making payments in lieu of retirement benefits or making payments in lieu of retirement benefits or
defined benefit arrangements. No element of variable defined benefit arrangements. No element of variable
pay should be pensionable. pay should be pensionable.
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… …
Shareholding The Pensions and Lifetime Savings Association argues for Shareholding The Pensions and Lifetime Savings Association argues for
requirement minimum shareholding guidelines of 200 percent of basic requirement minimum shareholding guidelines of 200 percent of basic
(including post- salary. Unvested holdings in share incentive plans do not (including post- salary. Unvested holdings in share incentive plans do not
cession) count towards fulfilment of the requirement. cession) count towards fulfilment of the requirement.
Since the publication of the 2018 UK Code, Ppost- Since the publication of the 2018 UK Code, post-
employment shareholding requirements are becoming employment shareholding requirements have been widely
increasingly common have been widely adopted by UK adopted by UK companies. The Code states that the
companies. The Code states that the remuneration remuneration committee should develop a formal policy
committee should develop a formal policy for post- for post-employment shareholding requirements
employment shareholding requirements encompassing encompassing both unvested and vested shares. Guidance
both unvested and vested shares. Guidance from the from the Investment Association suggests that the post-
Investment Association suggests that the post- employment shareholding requirement should apply for
employment shareholding requirement should apply for at least two years at a level equal to the lower of a) the
at least two years at a level equal to the lower of a) the shareholding requirement immediately prior to departure
shareholding requirement immediately prior to departure and b) the actual shareholding on departure, and that the
and b) the actual shareholding on departure, and that the remuneration committee should state the structures or
remuneration committee should state the structures or processes it has in place to ensure that the post-
processes it has in place to ensure that the post- employment shareholding requirements are maintained.
employment shareholding requirements are maintained.
Rationale for Change:
These amendments reflect ISS' position on pension contributions and post-cessation shareholding requirements as potential drivers of the voting recommendation
where the remuneration policy is submitted for shareholder approval. As shown in the "Good market practice" section of the extract, ISS has already established a
position on these issues as part of previous policy update cycles in 2018 and 2019. This update recognises pensions and post-cessation shareholding requirements as
potential vote drivers, as these issues have come into prominence since the 2018 UK Corporate Governance Code came into force.
There is no intent to significantly alter ISS' existing approach in terms of the application of the policy.
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Investment Companies
Authorise Issue of Equity without Pre-emptive Rights
Current ISS Policy, incorporating changes: New ISS Policy:
General Recommendation: Generally vote for a resolution to authorise the General Recommendation: Generally vote for a resolution to authorise the
issuance of equity unless if there is a firm commitment from the board that issuance of equity if there is a firm commitment from the board that shares
shares would only be issued at a price at or above net asset value 1. Otherwise, would only be issued at a price at or above net asset value1. Otherwise, generally
generally vote for a resolution to authorise the issuance of equity, unless: vote for a resolution to authorise the issuance of equity, unless:
▪ The general issuance authority exceeds one-third (33 percent) of the issued ▪ The general issuance authority exceeds one-third (33 percent) of the issued
share capital. Assuming it is no more than one-third, a further one-third of share capital. Assuming it is no more than one-third, a further one-third of
the issued share capital may also be applied to a fully pre-emptive rights the issued share capital may also be applied to a fully pre-emptive rights
issue taking the acceptable aggregate authority to two-thirds (66 percent); issue taking the acceptable aggregate authority to two-thirds (66 percent);
or or
▪ The routine authority to disapply pre-emption rights exceeds 5 percent of ▪ The routine authority to disapply pre-emption rights exceeds 5 percent of
the issued share capital in any one year, or 10 percent if there is a the issued share capital in any one year.
commitment that any issuance will be at or above net asset value.
Share issuance proposals which involve the issue of C shares will be considered Share issuance proposals which involve the issue of C shares will be considered
using the above guidance. using the above guidance.
Rationale for Change:
ISS policy for the U.K. & Ireland features a section dedicated to investment companies, also known as investment trusts, which recognise the differences between these
entities and publicly traded operating companies. The policy is based on legacy voting guidelines previously issued by the UK National Association of Pension Funds
(now the Pensions and Lifetime Savings Association). These guidelines are however no longer maintained, having last been updated in 2012.
In line with the former NAPF guidelines, ISS' policy currently allows a maximum limit of 5 percent of the issued share capital for general issuance authorities without
pre-emptive rights, or 10 percent when the shares are to be issued at a premium to net asset value (NAV). ISS notes, however, the guidance issued by the U.K.'s Pre-
1LR 15.4.11 prohibits investment trusts with a premium listing from issuing shares below NAV without shareholder approval. For the avoidance of doubt, ISS will require an explicit
confirmation from the company that shares would only be issued at or above the prevailing NAV per share.
Redlined = deleted; green = added
ISSGOVERNANCE.COM 12 of 56EMEA POLICY UPDATES FOR 2021 Emption Group, which states that "in the case of an investment trust or similar listed closed-ended fund company, if there would be no resulting value dilution, for example if an investment trust were to issue shares at a premium to the underlying net asset value per share, this would not normally raise any concerns". Most investment trusts trade at a discount to their NAV, and the issuance of new shares above NAV may be used to manage this discount. Shares issued above NAV do not result in economic dilution to shareholders, and many investors hold the view that the benefits of increased liquidity, lowered costs per share and greater diversification outweigh any concern about the dilution of voting rights, so long as shares are issued at or above NAV. This update aligns the ISS policy to the position set out by the UK Pre-Emption Group, the body that sets the market standards on share issuance authorities. Redlined = deleted; green = added ISSGOVERNANCE.COM 13 of 56
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Continental Europe
Operational Items
Appointment of Auditors and Auditor Fees
Current ISS Policy, incorporating changes: New ISS Policy:
General Recommendation: Generally vote for proposals to (re)appoint auditors General Recommendation: Generally vote for proposals to (re)appoint auditors
and/or proposals authorizing the board to fix auditor fees, unless: and/or proposals authorizing the board to fix auditor fees, unless:
▪ The name of the proposed auditors has not been published; ▪ The name of the proposed auditors has not been published;
▪ There are serious concerns about the effectiveness of the auditors; ▪ There are serious concerns about the effectiveness of the auditors;
▪ The lead audit partner(s) has been linked with a significant auditing ▪ The lead audit partner(s) has been linked with a significant auditing
controversy; controversy;
▪ There is reason to believe that the auditor has rendered an opinion which is ▪ There is reason to believe that the auditor has rendered an opinion which is
neither accurate nor indicative of the company's financial position; neither accurate nor indicative of the company's financial position;
▪ The lead audit partner(s) has previously served the company in an executive ▪ The lead audit partner(s) has previously served the company in an executive
capacity or can otherwise be considered affiliated with the company; capacity or can otherwise be considered affiliated with the company;
▪ The auditors are being changed without explanation; or ▪ The auditors are being changed without explanation; or
▪ For widely-held companies, fFees for non-audit services exceed either 100 ▪ Fees for non-audit services exceed either 100 percent of standard audit-
percent of standard audit-related fees or any stricter limit set in local best related fees or any stricter limit set in local best practice recommendations
practice recommendations or law. or law.
In circumstances where fees for non-audit services include fees related to In circumstances where fees for non-audit services include fees related to
significant one-time capital structure events: initial public offerings, bankruptcy significant one-time capital structure events: initial public offerings, bankruptcy
emergence, and spinoffs; and the company makes public disclosure of the emergence, and spinoffs; and the company makes public disclosure of the
amount and nature of those fees which are an exception to the standard "non- amount and nature of those fees which are an exception to the standard "non-
audit fee" category, then such fees may be excluded from the non-audit fees audit fee" category, then such fees may be excluded from the non-audit fees
considered in determining the ratio of non-audit to audit fees. considered in determining the ratio of non-audit to audit fees.
For concerns relating to the audit procedures, independence of auditors, and/or For concerns relating to the audit procedures, independence of auditors, and/or
name of auditors, ISS will focus on the auditor election. For concerns relating to name of auditors, ISS will focus on the auditor election. For concerns relating to
fees paid to the auditors, ISS will focus on remuneration of auditors if this is a fees paid to the auditors, ISS will focus on remuneration of auditors if this is a
separate voting item, otherwise ISS would focus on the auditor election. separate voting item, otherwise ISS would focus on the auditor election.
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ISSGOVERNANCE.COM 14 of 56EMEA POLICY UPDATES FOR 2021 Rationale for Change: The harmonization of non-core companies’ policies to core ones is beneficial in terms of equal treatment between listed companies under ISS coverage. By extending focus and attention to non-core companies, ISS promotes best-in-class non-core issuers, ultimately pushing investments on these entities, and more generally, acceptance and adoption of best governance practices among them. Basic disclosure of fees paid to audit firms is a crucial matter at any kind of public company (widely-held or not), being an important indicator of the auditors' independence level and their ability to attest the reliability of financial (and non-financial) disclosure. Effective use of financial statements requires that the reader understand the roles of those responsible for preparing and auditing financial statements. Board of Directors- Non-Contested Director Elections Director Terms Current ISS Policy, incorporating changes: New ISS Policy: For Belgium, France, Greece,Netherlands, Spain, and Switzerland, Generally vote Generally vote against the election or re-election of any director when his/her against the election or re-election of any director when his/her term is not term is not disclosed or when it exceeds four years and adequate explanation for disclosed or when it exceeds four years and adequate explanation for non- non-compliance has not been provided. Under best practice recommendations, compliance has not been provided. In these markets, the maximum board terms companies should shorten the terms for directors when the terms exceed the are either recommended best practice or required by legislation. Under best limits suggested by best practices. The policy will be applied to all companies in practice recommendations, companies should shorten the terms for directors these markets, for bundled as well as unbundled items. when the terms exceed the limits suggested by best practices. The policy will be applied to all companies in these markets, for bundled as well as unbundled items. For general meetings held on or after Feb. 1, 2021, the above policy will be applied to all European companies, for bundled as well as unbundled items. Rationale for Change: The one-year transition period for the policy update adopted last year to expand the expectation of a four-year maximum board term to all European companies has now passed. Redlined = deleted; green = added ISSGOVERNANCE.COM 15 of 56
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Election of a Former CEO as Chairman of the Board
Current ISS Policy, incorporating changes: New ISS Policy:
Generally vote against the election or reelection of a former CEO as chairman to Generally vote against the election or reelection of a former CEO as chairman to
the supervisory board or board of directors at widely held companies in the supervisory board or board of directors in Germany, Austria, and the
Germany, Austria, and the Netherlands. In markets such as Germany, where the Netherlands. In markets such as Germany, where the general meeting only
general meeting only elects the nominees and, subsequently, the new board’s elects the nominees and, subsequently, the new board’s chairman, ISS will
chairman, ISS will generally recommend a vote against the election or reelection generally recommend a vote against the election or reelection of a former CEO,
of a former CEO, unless the company has publicly confirmed prior to the general unless the company has publicly confirmed prior to the general meeting that he
meeting that he will not proceed to become chairman of the board. will not proceed to become chairman of the board.
Considerations should be given to any of the following exceptional circumstances Considerations should be given to any of the following exceptional circumstances
on a case-by-case basis if: on a case-by-case basis if:
▪ There are compelling reasons that justify the election or reelection of a ▪ There are compelling reasons that justify the election or reelection of a
former CEO as chairman; or former CEO as chairman;
▪ The former CEO is proposed to become the board’s chairman only on an ▪ The former CEO is proposed to become the board’s chairman only on an
interim or temporary basis; or interim or temporary basis;
▪ The former CEO is proposed to be elected as the board’s chairman for the ▪ The former CEO is proposed to be elected as the board’s chairman for the
first time after a reasonable cooling-off period; or first time after a reasonable cooling-off period; or
▪ The board chairman will not receive a level of compensation comparable to ▪ The board chairman will not receive a level of compensation comparable to
the company’s executives nor assume executive functions in markets where the company’s executives nor assume executive functions in markets where
this is applicable. this is applicable.
Rationale for Change:
The harmonization of non-core companies’ policies to core ones is beneficial in terms of equal treatment between listed companies under ISS coverage. By extending
focus and attention to non-core companies, ISS analysis would promote best-in-class non-widely-held issuers, ultimately pushing investments on these entities, and
more generally, acceptance and adoption of best governance practices among them.
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POLICY UPDATES FOR 2021
Overboarded Directors
Current ISS Policy, incorporating changes: New ISS Policy:
Overboarded Directors Overboarded Directors
General Recommendation: In Austria, Belgium, Denmark, Finland, France, General Recommendation: In Austria, Belgium, Denmark, Finland, France,
Germany, Italy, Luxembourg, the Netherlands, Norway, Poland, Spain, Sweden, Germany, Italy, Luxembourg, the Netherlands, Norway, Poland, Spain, Sweden,
and Switzerland, at widely-held companies, ISS will generally recommend a vote and Switzerland, ISS will generally recommend a vote against a candidate when
against a candidate when s/he holds an excessive number of board s/he holds an excessive number of board appointments, as defined by the
appointments, as defined by the following guidelines: following guidelines:
▪ Any person who holds more than five mandates at listed companies will be ▪ Any person who holds more than five mandates at listed companies will be
classified as overboarded. For the purposes of calculating this limit, a non- classified as overboarded. For the purposes of calculating this limit, a non-
executive directorship counts as one mandate, a non-executive executive directorship counts as one mandate, a non-executive
chairmanship counts as two mandates, and a position as executive director chairmanship counts as two mandates, and a position as executive director
(or a comparable role) is counted as three mandates. (or a comparable role) is counted as three mandates.
▪ Also, any person who holds the position of executive director (or a ▪ Also, any person who holds the position of executive director (or a
comparable role) at one company and a non-executive chairman at a comparable role) at one company and a non-executive chairman at a
different company will be classified as overboarded. different company will be classified as overboarded.
Rationale for Change:
The harmonization of overboarding standards across Continental European markets to all companies will be beneficial in terms of equal treatment between listed
companies under ISS coverage. According to ISS' voting policy guidelines for Continental Europe, any director who holds more than five mandates is considered
overboarded. For the purposes of calculating this limit, a non-executive directorship counts as one mandate, a non-executive chairmanship counts as two mandates,
and a position as executive director (or a comparable role) is counted as three mandates.
Since the overboarding computation already takes into account board mandates at non-widely held companies, the change aligns ISS' treatment of director elections
across all companies in Continental Europe.
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ISSGOVERNANCE.COM 17 of 56EMEA
POLICY UPDATES FOR 2021
Composition of Committees
Current ISS Policy, incorporating changes: New ISS Policy:
General Recommendation: For widely-held companies, generally vote against General Recommendation: For widely-held companies, generally vote against
the (re)election of any non-independent members of the audit committee if: the (re)election of any non-independent members of the audit committee if:
▪ Fewer than 50 percent of the audit committee members, who are elected by ▪ Fewer than 50 percent of the audit committee members, who are elected by
shareholders in such capacity or another – excluding, where relevant, shareholders in such capacity or another – excluding, where relevant,
employee shareholder representatives – would be independent; or employee shareholder representatives – would be independent; or
▪ Fewer than one-third of all audit committee members would be ▪ Fewer than one-third of all audit committee members would be
independent. independent.
For companies whose boards are legally required to have 50 percent of directors For companies whose boards are legally required to have 50 percent of directors
not elected by shareholders, the second criterion is not applicable. not elected by shareholders, the second criterion is not applicable.
Generally vote against the election or reelection of the non-independent Generally vote against the election or reelection of the non-independent
member of the audit committee designated as chairman of that committee. member of the audit committee designated as chairman of that committee.
For widely-held companies in Belgium, the Netherlands, and Switzerland, For widely-held companies, generally vote against the (re)election of any non-
generally vote against the (re)election of any non-independent members of the independent members of the remuneration committee if:
remuneration committee if: their (re)election would lead to a non-independent
majority on that committee. ▪ Fewer than 50 percent of the remuneration committee members, who are
elected by shareholders in such capacity or another - excluding, where
▪ Fewer than 50 percent of the remuneration committee members, who are relevant, employee shareholder representatives - would be independent; or
elected by shareholders in such capacity or another - excluding, where ▪ Fewer than one-third of all remuneration committee members would be
relevant, employee shareholder representatives - would be independent; or independent.
▪ Fewer than one-third of all remuneration committee members would be
independent. For companies whose boards are legally required to have 50 percent of directors
not elected by shareholders, the second criterion is not applicable.
For companies whose boards are legally required to have 50 percent of directors
not elected by shareholders, the second criterion is not applicable. For all companies:
For all companies: Generally vote against the (re)election of executives who serve on the company’s
audit or remuneration committee. ISS may recommend against if the disclosure
In Belgium, Denmark, Finland, France, Iceland, Luxembourg, the Netherlands, is too poor to determine whether an executive serves, or will serve, on a
Norway, Spain, Sweden, and Switzerland, Generally vote against the (re)election committee. If a company does not have an audit or a remuneration committee,
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